D089 Principles of Economics - Set 4 - Part 1

Correct Answer: The cost of producing one more unit of a good

Marginal cost is the additional cost incurred when producing one more unit of a good, calculated by the change in total cost divided by the change in output.

Correct Answer: The value of the next best alternative foregone when making a choice

Opportunity cost refers to the benefits or value that must be given up to choose one option over another.

Correct Answer: Demand is relatively unresponsive to price changes

Inelastic demand means that consumers' quantity demanded does not change significantly when prices change, often because the good is a necessity or has few substitutes.

Correct Answer: A government-imposed limit on how high a price can be charged for a good or service

Price ceilings prevent prices from rising above a certain level, often used to make essential goods more affordable but can lead to shortages.

Correct Answer: As more of a variable input is added to a fixed input, the additional output will eventually decrease

The law of diminishing returns suggests that adding more of one input, while keeping others constant, will eventually result in smaller increases in output.

Correct Answer: In the short-run, only some factors of production are variable, while in the long-run, all factors of production are variable

In the short run, at least one factor of production is fixed (e.g., capital), while in the long run, all inputs can be adjusted.

Correct Answer: Holding all other variables constant while examining one specific variable

Ceteris paribus is a Latin phrase meaning "all other things being equal," used to isolate the effect of one variable while holding others constant.

Correct Answer: A cost or benefit that affects parties who are not involved in a transaction

Externalities occur when a third party is affected by an economic activity, such as pollution from a factory impacting local residents.

Correct Answer: The level of unemployment consistent with stable inflation

The natural rate of unemployment includes frictional and structural unemployment, reflecting the long-term equilibrium in the labor market.

Correct Answer: To promote free trade and resolve trade disputes between countries

The WTO facilitates global trade by helping countries negotiate trade agreements and resolve disputes that arise in international commerce.

Correct Answer: The knowledge, skills, and experience possessed by workers

Human capital refers to the education, skills, and expertise that workers bring to their jobs, which can improve productivity and economic growth.

Correct Answer: Government spending and tax policies used to influence the economy

Fiscal policy refers to the use of government spending and taxation to influence the economy, often to control inflation, reduce unemployment, or stimulate growth.

Correct Answer: A tax that increases as income increases

In a progressive tax system, higher-income individuals pay a larger percentage of their income in taxes compared to lower-income individuals.

Correct Answer: To manage the money supply and control inflation

The Federal Reserve, the central bank of the United States, uses tools like interest rates and open market operations to regulate the money supply and control inflation.

Correct Answer: Real GDP is adjusted for inflation, while nominal GDP is not

Real GDP accounts for changes in price levels by adjusting for inflation, giving a more accurate measure of an economy's output over time.

Correct Answer: To protect domestic industries by making foreign goods more expensive

Import tariffs are taxes on imported goods designed to make foreign products more expensive, helping to protect domestic producers from competition.

Correct Answer: A market structure where many firms produce identical products, and no single firm has market control

In perfect competition, many firms sell identical products, and all firms are price takers with no ability to influence the market price.

Correct Answer: The equilibrium price increases

When demand increases and supply remains constant, the equilibrium price rises as more consumers are willing to pay higher prices for the same quantity of goods.

Correct Answer: A market structure dominated by a few large firms that control prices

In an oligopoly, a small number of large firms dominate the market, often leading to price setting and reduced competition.

Correct Answer: A sustained increase in the overall price level of goods and services

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power over time.